Report: Health costs made record jump in 2009

by Noam N. Levey - Feb. 4, 2010 12:00 AMLos Angeles Times

WASHINGTON - In a stark reminder of growing costs, the government estimated today that health care consumed a record 17.3 percent of all spending in the U.S. economy last year - or roughly $2.5 trillion.

The health-care sector's share of the gross domestic product grew 1.1 percent in 2009, the single largest one-year jump in health spending since the government started keeping such records a half-century ago.

And as soon as next year, more than half of the nation's total health-care tab may fall to the government for the first time, according to an annual report by independent actuaries at the federal Centers for Medicare and Medicaid Services.

The rise in current costs, driven in part by surging spending in the government Medicare and Medicaid programs and the bleak projections for the future, do not take into account changes that may come if Democrats succeed in reviving their health-overhaul legislation.

The report, although issued by a nonpartisan accounting agency, appears likely to fuel further debate about the health bills now stalled in Congress.

In the absence of change, Wednesday's report raises a grim prospect for the country - a health-care system consuming an ever greater and potentially unsustainable share of the economy even as private health coverage lags.

Last year, the centers estimated that government spending on health care would not overtake private spending until 2016, compared with 2011 or 2012 in the current report.

"The health system is hurting, and we are seeing that in these numbers," said Karen Davis, president of the Commonwealth Fund, a leading authority on health-care policy.

The report also points up the financial cost of the Great Recession and the growing pressure it is putting on state and local governments.

Federal and state spending on Medicaid, the nation's primary health-insurance program for low-income Americans, jumped nearly 10 percent in 2009, according to the report. Medicare spending, meanwhile, shot up just over 8 percent.

President Barack Obama and many health-care experts have argued that reshaping the health system would ultimately make it more efficient, even if overall health spending continued to increase - a claim Republicans dispute.

Fueled by new technology, an aging population, rising incomes and other changes, spending on medical care has been consuming a larger and larger share of the nation's economy for years, jumping from about 5 percent of GDP in 1960 to nearly 14 percent in 2000.

But the recession that began in 2007 accelerated that trend as the broader economy contracted while health-care spending continued to increase, according to centers' actuaries and economists.

Even now, with the economy slowly recovering, the government expects that the growth of health spending will outpace the expansion of the overall economy. By 2020, $1 of every $5 spent in America is expected to go to pay for health care.

Some economists believe that this is not necessarily a problem, as the health-care industry can provide good jobs and improve both health and productivity.

But there is growing concern that as much as a third of the medical care delivered in the U.S. does not help patients.

"Are we getting value for dollar? That is the question," said Len Nichols, who directs the Health Policy Program at the centrist New America Foundation. "If you believe that so much medical care is unnecessary, as I do, then it is criminal that we are spending so much."

On the other end of the political spectrum, Stuart Butler, vice president for domestic and economic policy at the conservative Heritage Foundation, said the numbers underscore the need for more aggressive action to curb spending.

"The only way to do this is to simply spend less," Butler said, warning that the health bills being pushed on Capitol Hill do the opposite.

Officials with the Centers for Medicare and Medicaid Services noted that health spending has been increasing even as the number of Americans without health insurance is growing, another sign of problems with the system.

"With higher unemployment, people lose their jobs (and) many of them lose their health-care coverage in the process. And under current law, they don't have much to fall back on," said Richard S. Foster, chief actuary.

Foster said the report by his office indicates that two of the main trends driving calls for a health overhaul - rising costs and shrinking numbers of people with health coverage - are essentially the same as they were when the health-care debate began last year.

"Nothing much has changed in that regard," he said.

Inefficiency is becoming a particularly acute problem for state and federal governments, which the report shows are increasingly supporting the nation's health-care system.

Half a century ago, government accounted for just a quarter of all health spending. Now, as the cost of caring for elderly and poor Americans swells, government's share of the total bill is fast becoming greater than that of the private sector.

The trend accelerated in the recession, as Washington spent billions of dollars to help states prop up Medicaid programs being strained by the growing ranks of the unemployed and uninsured.